Every Option Ominous For Trembling Airline

March 8, 1989|By TOM STIEGHORST, Business Writer

Can Eastern survive?

Blocked from forcing its pilots back to work, Eastern Airlines now faces the future with few ways of earning money. Its finances, in poor shape before a 4- day-old strike, have been shredded by the refusal of union employees to report to work.

As Eastern plotted its strategy on Tuesday night, one analyst said the company could choose among five financial routes.

A much-discussed bankruptcy filing is not Eastern`s best option, but a 60- day delay in the labor crisis imposed by Congress would doom the airline, bond analyst Raymond Neidl said.

Eastern Executive Vice President Joseph Leonard said at a news conference on Tuesday that the strike has caused ``an enormous cash drain on Eastern.``

The airline already is $2.5 billion in debt and lost $335.4 million last year.

Asked about speculation that Eastern could file for Chapter 11 bankruptcy, which allows a company to forgo paying bills temporarily while it reorganizes under supervision of a federal judge, Leonard said Eastern would rather not.

``That`s obviously our last course of action,`` he said. ``We`re looking at any option, and trying to develop other options, to avoid that.``

Neidl said that Eastern has five options:

-- Operate a limited schedule.

-- Sell pieces of Eastern.

-- Sell the company outright.

-- Bankruptcy.

-- Give in to the unions.

``The first one would be to operate the schedule they can operate until they can recruit new pilots,`` Neidl said.

That means only the Northeast shuttle and a single South American route.

Qualifying pilots to fly Eastern jets would be a ``lengthy`` process, he said. In the meantime, Eastern`s cash hoard, estimated at $300 million, would be reduced daily $2 million to $2.5 million, mostly to pay interest.

Although Eastern is saving money on salaries and jet fuel, it still must set aside cash for interest on its debts, as well as insurance, rents and other fixed costs.

At the current rate, Eastern could survive for at least four months.

A second option, Neidl said, would be to sell Eastern in pieces.

``I think they`ve got a lot of valuable assets, and there are a lot of buyers for pieces of the company,`` he said.

Neidl said the third option, to sell Eastern outright, is the actual objective of the union strike. But there are few potential buyers.

If someone, such as TWA Chairman Carl Icahn, would buy Eastern it would go cheaper than if Eastern were sold in pieces, Neidl said.

``It probably should be another airline,`` he said. ``I don`t think Eastern can survive on its own now. I don`t think they have the market size.``

The fourth option is that Eastern could seek bankruptcy protection from creditors. In court on Tuesday, Eastern attorney David Ross said there would be no alternative if a federal judge did not order Eastern pilots back to work.

``I don`t think that`s so likely,`` Neidl said.

In bankruptcy court, the unions would have a say in Eastern financial decisions.

``I think that`s an incentive not to file for Chapter 11,`` he said.

The last option is to capitulate to the machinists union. Neidl said that would eventually lead to bankruptcy.

Neidl also said that a wild card is the chance that Congress will enforce a 60-day return to pre-strike conditions and impose a contract settlement. He said Eastern would lose most of its usual revenue in such a period but would incur its normal expenses.

``If that happened, I think Eastern would be finished,`` he said. ``At the end of 60 days, you would have an imposed settlement, which would favor the unions.``

Perhaps the most damaging effect of the strike is on future business.

``We have no business on the books,`` Leonard acknowledgedIf a federal judge orders pilots back to work, Eastern could not quickly resume its old schedule of 1,040 daily flights, he said.

Competitors have now picked up the 100,000 people Eastern typically flew every day before the strike. Reservations on Eastern flights have dried up, and revenue from advance ticket sales has disappeared.

If Eastern resumed a full schedule, planes would fly nearly empty for several weeks.

FINANCIAL SQUEEZE

Eastern finds itself in a deteriorating financial condition:

-- CASH ON HAND: Eastern had about $300 million in cash before the strike. Almost all of that is money that customers paid in advance for tickets and that now must be refunded or given to competitors who honor the tickets.

-- REVENUES: Eastern, which did about $10 million in daily business before the strike, has no advance bookings and no revenue. It could get cash from the pending $365 million sale of its Northeast shuttle. Repayment of debt and a required pension fund payment would leave Eastern with about $210 million.

-- LOSSES: Eastern has an operating cash loss of at least $2 million a day for payments ranging from leasing ticket counters to paying 1,500 remaining employees.

-- DEBTS: Eastern faces a $70 million secured debt payment by month`s end. The airline also must pay about $25 million a month in interest on the $2.5 billion debt it took on during a fleet expansion in the early 1980s.